<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                ----------------

                                    FORM 10-Q

                                ----------------

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

                        COMMISSION FILE NUMBER 001-31962

                                ----------------

                        GOVERNMENT PROPERTIES TRUST, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                MARYLAND                                        20-0611663
     (State or other jurisdiction of                         (I.R.S. Employer
     incorporation or organization)                         Identification No.)

     10250 REGENCY CIRCLE, SUITE 100
          OMAHA, NEBRASKA 68114                          (402) 391-0010
     (Address of principal executive             (Registrant's telephone number,
      offices, including zip code)                    including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                                 Yes [ ] No [X]

As of July 30, 2004, approximately 20.7 million shares of common stock of the
registrant were outstanding.

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                            PAGE
                                                                                                                            ----
<S>                                                                                                                         <C>
PART I - FINANCIAL INFORMATION
  Item 1.           Consolidated Financial Statements (unaudited).....................................................
                    Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003.................       3
                    Consolidated Statements of Operations for the three months and six months ended June 30, 2004 and
                    2003 (unaudited)..................................................................................       4
                    Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003 (unaudited).       5
                    Notes to Consolidated Financial Statements........................................................       6
  Item 2.           Management's Discussion and Analysis of Financial Condition and Results of Operations.............      12
  Item 3.           Quantitative and Qualitative Disclosures About Market Risk........................................      27
  Item 4.           Controls and Procedures...........................................................................      28
PART II - OTHER INFORMATION
  Item 1.           Not applicable....................................................................................
  Item 2.           Changes in Securities and Use of Proceeds.........................................................      29
  Item 3.           Not applicable....................................................................................
  Item 4.           Submission of Matters to a Vote of Security Holders...............................................      30
  Item 5.           Not applicable....................................................................................
  Item 6.           Exhibits and Reports on Form 8-K..................................................................      30
                    Signatures........................................................................................      31
</TABLE>

                                       2
<PAGE>

                        GOVERNMENT PROPERTIES TRUST, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                   JUNE 30,        DECEMBER 31,
                                                                                                     2004              2003
                                                                                              ----------------   --------------
                                                                                                  (UNAUDITED)
<S>                                                                                           <C>                <C>
                                             ASSETS
Real estate at cost:
  Land.....................................................................................   $      7,693,237   $    4,545,637
  Buildings and improvements...............................................................         58,022,419       24,050,859
  Tenant origination costs.................................................................         12,781,411        6,200,441
  Furniture and equipment..................................................................            178,690           34,486
                                                                                              ----------------   --------------
                                                                                                    78,675,757       34,831,423
  Accumulated depreciation.................................................................         (1,520,994)        (757,400)
                                                                                              ----------------   --------------
                                                                                                    77,154,763       34,074,023
Cash and cash equivalents..................................................................        105,164,936          760,859
Restricted cash escrows....................................................................            657,632          268,885
Restricted cash for letter of credit.......................................................         17,373,393              --
Tenant receivables.........................................................................            759,533          332,651
Notes receivable from tenant...............................................................            796,591          111,773
Deferred costs, net........................................................................            333,226        1,948,350
Real estate deposits.......................................................................          1,800,000          500,000
Property held for sale.....................................................................          4,271,071        4,266,438
Other assets...............................................................................          1,260,926          411,607
                                                                                              ----------------   --------------
Total assets...............................................................................   $    209,572,071   $   42,674,586
                                                                                              ================   ==============
                               LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Accounts payable and accrued expenses....................................................   $        975,013   $    2,116,101
  Dividend payable.........................................................................          3,102,075          147,536
  Lines of credit..........................................................................                 --        3,047,655
  Mortgage notes payable...................................................................         24,494,057       24,647,478
  Mortgage note payable - affiliate........................................................                 --        1,639,219
  Liabilities related to property held for sale............................................          3,145,509        3,195,359
  Advances from affiliate..................................................................                 --          102,873
                                                                                              ----------------   --------------
Total liabilities..........................................................................         31,716,654       34,896,221
Stockholders' equity:
  Common stock ($0.01 par value at June 30, 2004 and $10 par value at December
   31, 2003; 50,000,000 shares authorized, 20,680,502 and 975,552 shares issued
   and outstanding at June 30, 2004 and December 31, 2003, respectively)...................            205,093        9,755,527
  Accumulated deficit......................................................................         (3,423,666)        (386,586)
  Additional paid-in capital...............................................................        187,795,417       (1,073,299)
  Dividends declared.......................................................................         (6,721,427)        (517,277)
                                                                                              ----------------   --------------
Total stockholders' equity.................................................................        177,855,417        7,778,365
                                                                                              ----------------   --------------
Total liabilities and stockholders' equity.................................................   $    209,572,071   $   42,674,586
                                                                                              ================   ==============
</TABLE>

                             SEE ACCOMPANYING NOTES.

                                       3
<PAGE>
\
                        GOVERNMENT PROPERTIES TRUST, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                               (UNAUDITED)                  (UNAUDITED)
                                                                           THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                                JUNE 30,                     JUNE 30,
                                                                       ----------------------------   ------------------------
                                                                            2004            2003          2004        2003
                                                                       ----------------------------   ----------   -----------
<S>                                                                    <C>             <C>            <C>          <C>
Revenue:
   Rental income.....................................................  $   1,677,748   $     738,495  $ 2,721,741  $   814,900
   Tenant reimbursements.............................................        164,195              --      164,195           --
                                                                       -------------   -------------  -----------  -----------
Total revenue........................................................      1,841,943         738,495    2,885,936      814,900
Expenses:
   Property operations...............................................        335,772         122,486      583,550      135,104
   Real estate taxes.................................................        172,928          20,058      321,025       25,294
   Depreciation and amortization.....................................        483,486         211,661      763,594      235,809
   General and administrative........................................        958,641         211,316    1,989,186      306,836
                                                                       -------------   -------------  -----------  -----------
Total expenses.......................................................      1,950,827         565,521    3,657,355      703,043
                                                                       -------------   -------------  -----------  -----------
Operating income (loss)..............................................       (108,884)        172,974     (771,419)     111,857
Other income.........................................................        387,264           2,400      630,533        8,711
Interest expense:
   Expense...........................................................       (367,319)       (297,396)    (766,148)    (309,459)
   Expense from issuance of warrant..................................           --              --     (2,097,900)          --

   Amortization of deferred financing fees...........................        (74,900)         (3,615)     (78,514)      (3,615)
                                                                       -------------   -------------  -----------  -----------
Loss from continuing operations......................................       (163,839)       (125,637)  (3,083,448)    (192,506)
                                                                       -------------   -------------  -----------  -----------
Discontinued operations:
  Income from property held for sale.................................         42,497          12,349       46,368       33,009
                                                                       -------------   -------------  -----------  -----------
Net loss.............................................................  $    (121,342)  $    (113,288) $(3,037,080) $  (159,497)
                                                                       =============   =============  ===========  ===========
Earnings per share (basic and diluted):
   Loss from continuing operations...................................  $       (0.01)  $       (0.15) $     (0.17) $     (0.27)
   Income from discontinued operations...............................             --            0.02           --         0.04
                                                                       =============   =============  ===========  ===========
   Net loss..........................................................  $       (0.01)  $       (0.13) $     (0.17) $     (0.23)
                                                                       =============   =============  ===========  ===========
Distributions declared per share.....................................  $        0.15   $        0.15  $      0.30  $      0.30
                                                                       =============   =============  ===========  ===========
Weighted average shares outstanding (basic and diluted)..............     20,509,303         854,313   17,610,800      703,797
                                                                       =============   =============  ===========  ===========
</TABLE>

                             SEE ACCOMPANYING NOTES.

                                       4
<PAGE>

                        GOVERNMENT PROPERTIES TRUST, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                             (UNAUDITED)
                                                                                                          SIX MONTHS ENDED
                                                                                                              JUNE 30,
                                                                                                  ---------------------------------
                                                                                                         2004             2003
                                                                                                  ---------------------------------
<S>                                                                                               <C>                <C>
Cash flows from operating activities:
  Net loss....................................................................................    $     (3,037,080)  $     (159,497)
  Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization..............................................................             763,594          235,809
   Amortization of deferred financing fees....................................................              78,514            3,615
   Compensation expense.......................................................................             260,725               --
   Expense from issuance of warrant...........................................................           2,097,900               --
   Changes in assets and liabilities:
     Restricted cash escrows..................................................................            (388,747)          (6,632)
     Tenant receivables.......................................................................            (426,882)        (274,182)
     Note receivable from tenant..............................................................            (684,818)        (184,924)
     Other assets.............................................................................            (903,802)        (101,939)
     Accounts payable and accrued expenses....................................................             681,783          130,984
                                                                                                  ----------------   --------------
      Net cash used in operating activities...................................................          (1,558,813)        (356,766)
                                                                                                  ----------------   --------------
Cash flows from investing activities:
  Expenditures for real estate................................................................         (43,744,334)     (34,688,949)
  Restricted cash for letter of credit........................................................         (17,373,393)              --
  Deposits on future real estate purchases....................................................          (1,400,000)              --
                                                                                                  ----------------   --------------
      Cash used in investing activities.......................................................         (62,517,727)     (34,688,949)
                                                                                                  ----------------   --------------
Cash flows from financing activities:

  Financing fees..............................................................................            (286,261)        (134,709)
  Net (repayment) borrowing under lines of credit.............................................          (3,047,655)       2,098,410
  Proceeds from mortgage notes payable........................................................                  --       24,839,553
  Payments on mortgage notes payable - affiliate..............................................          (1,639,219)       1,645,000
  Repayments of advances from affiliate.......................................................            (102,873)        (196,462)
  Principal payments on mortgage notes payable................................................            (153,421)         (74,763)
  Proceeds from sale of common stock..........................................................         193,202,100        5,434,697
  Offering costs paid.........................................................................         (16,242,443)        (531,810)
  Dividends paid..............................................................................          (3,249,611)         (94,061)
                                                                                                  ----------------   --------------
      Net cash provided by financing activities...............................................         168,480,617       32,985,855
                                                                                                  ----------------   --------------
Net increase in cash and cash equivalents.....................................................         104,404,077       (2,059,860)
Cash and cash equivalents, beginning of period................................................             760,859        2,314,319
                                                                                                  ----------------   --------------
Cash and cash equivalents, end of period......................................................    $    105,164,936   $      254,459
                                                                                                  ================   ==============
</TABLE>

                             SEE ACCOMPANYING NOTES.

                                       5
<PAGE>

                        GOVERNMENT PROPERTIES TRUST, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Government
Properties Trust, Inc., a Maryland corporation (the "Company"), have been
prepared pursuant to Securities and Exchange Commission ("SEC") rules and
regulations and should be read in conjunction with the consolidated financial
statements and notes thereto included in the 2003 Form 10-K. The accompanying
consolidated financial statements highlight significant changes to the Notes
included in the 2003 Form 10-K and present interim disclosures as required by
the SEC. The accompanying consolidated financial statements reflect, in the
opinion of management, all adjustments considered necessary for a fair
presentation of the interim financial statements. All such adjustments are of a
normal and recurring nature.

The preparation of the consolidated financial statements in conformity with U.S.
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expense during
the reporting periods. Our results for the quarter ended June 30, 2004 are not
necessarily indicative of our results for any future interim period or for the
full fiscal year.

Certain reclassifications have been made to the previously reported 2003
consolidated financial statements in order to provide comparability with the
interim period financial statements reported herein. These reclassifications
have not changed the 2003 results of operations or stockholders' equity.

2. NATURE OF BUSINESS AND OPERATIONS

The Company was incorporated in Michigan in 1998. In January 2004, the Company
completed a public offering of its common stock and listed its common stock on
the New York Stock Exchange. In connection with this offering, the Company
reincorporated in Maryland and changed its name to Government Properties Trust,
Inc. The historical operations included in the consolidated financial statements
are those of its predecessor company (Gen-Net Lease Income Trust, Inc.).
References to the "Company" for periods prior to 2004 refer to Gen-Net Lease
Income Trust, Inc. and to Government Properties Trust, Inc. for subsequent
periods. The Company has elected to be taxed as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended, beginning in 2003.

The Company began formal operations with its first property acquisition in
December 2002 and, as of June 30, 2004, the Company owned eight properties
(includes one property held for sale - See Note 11) located throughout the
United States. The Company acquires properties through various operating
entities, which are wholly owned by the Company. The Company operates in one
segment.

Between October 2002 and August 2003, the Company sold 955,552 shares of its
common stock at $10 per share. In January 2004, the Company sold 19.3 million
shares of its common stock (the "Offering") at $10 per share and listed its
common stock on the New York Stock Exchange. The Offering raised approximately
$177 million in net proceeds.

3. COMMON STOCK AND EARNINGS PER SHARE

The Company reports earnings per share pursuant to Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". Basic and diluted loss per
share attributable for all periods presented is computed by dividing the loss to
common stockholders by the weighted average number of common shares and
potential common stock outstanding during the period. The Company had no common
stock equivalents outstanding for the three and six months ended June 30, 2003.
The Company had nonvested stock grants of 171,200 and 116,642 shares outstanding
during the three and six months ended June 30, 2004, respectively, which were
not included in the computation of diluted earnings per share because the effect
would have been anti-dilutive.

4. DEFERRED COSTS

                                       6
<PAGE>

Deferred costs consist of the following:

<TABLE>
<CAPTION>
                                                     JUNE 30,     DECEMBER 31,
                                                       2004          2003
                                                   --------------------------
<S>                                                <C>          <C>
Financing costs..................................  $   420,970  $     134,709
Offering costs...................................           --      1,822,871
Accumulated amortization.........................      (87,744)        (9,230)
                                                   -----------  -------------
                                                   $   333,226  $   1,948,350
                                                   ===========  =============
</TABLE>

In connection with the completion of the Offering, offering costs of $1.8
million at December 31, 2003 were reclassified to Additional Paid-in Capital in
the accompanying consolidated balance sheet.

5. RESTRICTED CASH FOR LETTER OF CREDIT

During the first quarter of 2004, the Company placed approximately $17.3 million
of operating cash into a restricted cash account to secure a letter of credit in
connection with a proposed property acquisition.

6. EQUITY INCENTIVE PLAN

The Company has a 2003 Equity Incentive Compensation Plan, which has 1,000,000
shares of Common Stock reserved for issuance thereunder. In connection with the
original issuance of shares during the first quarter of 2004, the Company
adopted the fair value recognition provisions of SFAS No. 123, "Accounting for
Stock Based Compensation".

The Company recognizes compensation expense for restricted shares issued based
upon the fair market value of the common stock at the grant date. Compensation
expense is recognized on a straight-line basis over the vesting period. During
the six months ended June 30, 2004, the Company granted 174,950 restricted
shares pursuant to the Plan. The fair value of the shares at the time of the
grant was $13.90 per share. Of the shares issued, 3,750 shares vested
immediately. The remaining 171,200 restricted shares were outstanding at June
30, 2004 and vest over periods of three to five years. Compensation expense
recognized and included in general and administrative expense in the
accompanying consolidated statement of operations was $151,974 and $260,725 for
the three and six months ended June 30, 2004, respectively. As of June 30, 2004,
there are 825,050 shares available for grant under the Plan.

7. LINES-OF-CREDIT, MORTGAGE NOTES PAYABLE AND MORTGAGE NOTE PAYABLE --
AFFILIATE

Lines-of-credit, mortgage notes payable, and mortgage note payable -- affiliate
consisted of the following:

<TABLE>
<CAPTION>
                                                                                                         JUNE 30,       DECEMBER 31,
                                                                                                           2004             2003
                                                                                                      --------------   -------------
<S>                                                                                                   <C>              <C>
LINES OF CREDIT
Line-of-credit with a financial institution for property acquisitions with
  advances up to $50,000,000, interest at prime rate (4.25% at June 30, 2004).
  Line-of-credit expires in April 2005, interest is due quarterly.  No advances have been made on
  the line-of-credit................................................................................  $           --   $          --
Line-of-credit with a financial institution for property acquisitions, interest at the financial
  institution's prime rate (4.0% at December 31, 2003), plus 50 basis points per
  annum. Advances were payable 180 days after the advance and were secured by a
  subordinated mortgage on the acquired property.  Principal repaid and line retired in February
  2004. (A).........................................................................................              --       2,287,510
Unsecured line-of-credit with a financial institution (maximum borrowing $150,000), interest at
  prime rate (4.0% at December 31, 2003), principal repaid and line retired in February 2004 (A)....              --         110,145
Unsecured line-of-credit with a financial institution (maximum borrowing $1,000,000), interest at
  fixed rate of 20%, principal repaid and line retired in January 2004 (A)..........................              --         650,000
                                                                                                      --------------   -------------
Total lines of credit...............................................................................  $           --   $   3,047,655
                                                                                                      ==============   =============
MORTGAGE NOTES PAYABLE(B),(C)
Mortgage notes payable to various financial institutions, collateralized by
  various properties, interest at fixed rates ranging from 5.7% to 8.3% per
  annum, with principal and interest payable monthly through 2013. The weighted
  average rate at both June 30, 2004 and December 31, 2003 was
  6.0%..............................................................................................  $   24,494,057   $  24,647,478
                                                                                                      ==============   =============
MORTGAGE NOTE PAYABLE -- AFFILIATE(C)
Mortgage note payable to Genesis Financial Group, Inc. collateralized by a subordinated mortgage on
  one property, interest at LIBOR (1.12% at December 31, 2003) plus 250 basis points per annum
  payable monthly and principal repaid and line retired in January 2004. (A)........................  $           --   $   1,639,219
                                                                                                      ==============   =============
</TABLE>

                                       7
<PAGE>

(A)  Debt outstanding at December 31, 2003 was retired with funds received in
     connection with the Offering.

(B)  The mortgages notes payable are subject to various operating covenants. In
     addition, the Company must periodically fund and maintain escrow accounts
     to fund future real estate taxes, repairs and maintenance and insurance
     payments, as well as to fund certain tenant releasing costs. These escrow
     accounts are included in restricted cash escrows.

(C)  A portion of the Company's real estate assets have been pledged as
     collateral for its mortgage notes payable, certain lines of credit and
     mortgage note payable -- affiliate.

Total interest paid on the lines-of-credit and mortgage notes payable was
$371,744 and $297,395 for the three months ended June 30, 2004 and 2003,
respectively. During the three months ended June 30, 2004 and 2003, the Company
incurred interest expense of $367,319 and $297,396, respectively.

For the six months ended June 30, 2004 and 2003, total interest paid on the
lines-of-credit and mortgage notes payable was $866,809 and $309,460,
respectively (including interest paid to Genesis Financial Group, Inc.
("Genesis") of $1,973 and $0 in 2004 and 2003, respectively). During the six
months ended June 30, 2004 and 2003, the Company incurred interest expense of
$766,148 and $309,459, respectively (including interest incurred with Genesis of
$1,973 and $0 in 2004 and 2003, respectively).

8. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to a concentration
of credit risk are primarily cash investments and accounts receivable from
tenants. Cash is generally invested in investment-grade short-term instruments
and the amount of credit exposure to any one commercial issuer is limited. The
Company has cash in financial institutions, which is insured by the Federal
Deposit Insurance Corporation ("FDIC") up to $100,000 per institution.

9. RELATED PARTY TRANSACTIONS

Prior to the Offering, Genesis the sponsor of the initial public offering by the
predecessor company Gen-Net Lease Income Trust, Inc., provided the Company with
property acquisition services, property disposition services, administration
services and property management services. Genesis now provides only property
acquisition services. A summary of the terms of these services provided by
Genesis are as follows:

<TABLE>
<CAPTION>
          FEE                                COMPENSATION
          ---                                ------------
<S>                              <C>
Acquisition Fees                 Up to 1% of the property purchase price for an
                                 acquisition fee plus up to 2% of the
                                 acquisition fee for acquisition related
                                 expenses.
Property Management Fees         For day-to-day property management - 3% of
                                 gross rental revenue.
Administrative                   For day-to-day administrative support to the
                                 Company - 3% of gross rental revenue and
                                 out-of-pocket expenses.
</TABLE>

The following is a summary of the fees incurred and payable:

<TABLE>
<CAPTION>
                                                               JUNE 30,             JUNE 30,
                                                         --------------------  -------------------
                                                                 2004                 2003
                                                         --------------------  -------------------
                                                           PAYABLE   INCURRED  PAYABLE    INCURRED
                                                         ---------  ---------  --------  ---------
<S>                                                      <C>        <C>        <C>       <C>
Acquisition fees(A)...................................   $      --  $ 434,300  $    --   $      --
Property management fees(B)...........................          --     10,888   11,997      22,084
Administrative fees(C)................................          --     10,237   10,888      29,859
</TABLE>

                                       8
<PAGE>

------------

(A) Amounts included in real estate cost in the Consolidated Balance Sheets.

(B) Amounts included in property operations expense in the Consolidated
    Statements of Operations.

(C) Amounts included in general and administrative expense in the Consolidated
    Statements of Operations.

In addition, Genesis owed the Company $310,000 (included in other assets) at
June 30, 2004 and December 31, 2003 for previous offering costs pursuant to a
conditional agreement between Genesis and the Company. The amount is
non-interest bearing, payable upon demand and is secured by an irrevocable
letter of credit which expires on June 30, 2005 unless extended to no later than
June 30, 2006.

10. PROPERTY ACQUISITIONS

The Company acquired the following properties in 2004 and 2003. The results of
their operations are included in the Company's consolidated statements of
operations from their respective dates of acquisition.

<TABLE>
<CAPTION>
                                                                                                          ACQUISITION      MONTH
PROPERTY                                                                                LOCATION              COST        ACQUIRED
--------                                                                          -------------------   --------------  ---------
<S>                                                                               <C>                   <C>             <C>
2003 acquisitions(A):
USDEA Building (Bakersfield Property)...........................................  Bakersfield, CA       $    2,385,804    January
Social Security Administration Offices (Charleston Property)....................  Charleston, WV            18,429,886     April
General Services Administration Office (Clarksburg Property)....................  Clarksburg, WV            10,989,117     April
Social Security Administration Office (Kingsport Property)(B)...................  Kingsport, TN              2,992,130     April
                                                                                                        --------------
                                                                                                        $   34,796,937
                                                                                                        ==============

2004 acquisitions(A):
Bureau of Public Debt (Mineral Wells Property)(C)...............................  Mineral Wells, WV     $    5,109,486     March
Federal Bureau of Investigation (Pittsburgh Property)...........................  Pittsburgh, PA            28,682,675      May
USDA District Offices (Lenexa Property).........................................  Lenexa, KS                10,525,293     June
                                                                                                        --------------
                                                                                                        $   44,317,454
                                                                                                        ==============
</TABLE>

(A)  In accordance with SFAS 141, the Company allocated the purchase price for
     these properties to net tangible and identified intangible assets acquired
     based on their fair values (including land, buildings, tenant improvements,
     acquired above and below market leases and the origination cost of acquired
     in-place leases) and acquired liabilities, and allocated the purchase price
     based on these assessments, including land at appraised value and buildings
     at replacement costs. The Company assessed fair value based on estimated
     cash flow projections that utilize discount and capitalization rates deemed
     appropriate by management and available market information. The value of
     tenant origination costs are amortized over the remaining term of the
     respective leases.

(B)  In connection with the purchase of this property, the Company assumed a
     first mortgage note and an unsecured note payable totaling $2,496,652.

(C)  In connection with the purchase of this property, the Company assumed a
     note receivable from tenant in the amount of $694,293. The interest on the
     note receivable is fixed at 8% per annum with principal and interest
     payable monthly through 2012.

11.  UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying unaudited Pro Forma Condensed Consolidated Statements of
Operations are presented as if, at January 1, 2003, the Company acquired the
properties described in Note 9 -- Property Acquisitions and the shares
outstanding at June 30, 2004 were also outstanding at January 1, 2003. In
management's opinion, all adjustments necessary to reflect the effects of the
above transactions have been made.

The unaudited Pro Forma Condensed Consolidated Statements of Operations are not
necessarily indicative of what the actual results of operations would have been
assuming the above mentioned transaction had occurred at the dates indicated
above, nor do they purport to represent our future results of operations.

            PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                       9
<PAGE>

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED               SIX MONTHS ENDED
                                                                              JUNE 30,                        JUNE 30,
                                                                    -----------------------------   -----------------------------
                                                                         2004            2003            2004            2003
                                                                    --------------  -------------   --------------  -------------
<S>                                                                 <C>             <C>             <C>             <C>
Total revenue.....................................................  $    2,365,943  $   2,202,115   $    4,601,112  $   4,428,323
                                                                    ==============  =============   ==============  =============
Income (loss) from continuing operations (A)......................  $       41,091  $    (161,194)  $   (2,388,427) $    (357,083)
                                                                    ==============  =============   ==============  =============
Income (loss) per diluted common share from continuing
 operations.......................................................  $         0.00  $       (0.01)  $        (0.12) $       (0.02)
                                                                    ==============  =============   ==============  =============
</TABLE>

(A)  Includes expense of approximately $2.1 million in the first quarter of 2004
     for issuance of warrant - See Note 12.

12. PROPERTY HELD FOR SALE

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the Company reflects the historical operating results of
properties sold or held for sale, as well as gain or loss on sale from these
properties, as discontinued operations in the consolidated statements of
operations for periods prior to their sale. The Company is actively marketing
the Harahan, LA property which was originally purchased in December 2002.
Harahan is the only property the Company owns which is leased by a
non-governmental tenant. At June 30, 2004, the Harahan property was considered
held for sale and the related assets and liabilities classified as held for sale
are comprised of the following at June 30, 2004 and December 31, 2003:

<TABLE>
<CAPTION>
                                                 JUNE 30, 2004  DECEMBER 31,2003
                                                 -------------  ----------------
<S>                                             <C>             <C>
ASSETS:
  Land.......................................   $     759,251     $    759,251
  Buildings and improvements.................       3,149,042        3,149,042
  Tenant origination costs...................         480,017          480,017
  Accumulated depreciation...................        (151,230)        (121,872)
  Deferred costs, net........................          33,991               --
                                                -------------     ------------
   Total assets..............................   $   4,271,071     $  4,266,438
                                                =============     ============
LIABILITIES:
  Accounts payable and accrued expenses......          15,585           40,318
  Mortgage note payable......................       3,129,924        3,155,041
                                                -------------     ------------
   Total liabilities.........................   $   3,145,509     $  3,195,359
                                                =============     ============
</TABLE>

The results of discontinued operations related to the Harahan property were
comprised of the following for the three and six months ended June 30, 2004 and
2003:

<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                            JUNE 30,                 JUNE 30,
                                                                    ------------------------  ------------------------
                                                                        2004         2003         2004        2003
                                                                    -----------  -----------  -----------  -----------
<S>                                                                 <C>          <C>          <C>          <C>
Rental income.....................................................  $    90,860  $    90,860  $   181,720  $   181,720
                                                                    -----------  -----------  -----------  -----------
Property operations...............................................        3,206        2,725        9,618        5,583
Depreciation and amortization.....................................           --       29,359       29,359       58,717
                                                                    -----------  -----------  -----------  -----------
  Total expense...................................................        3,206       32,084       38,977       64,300
                                                                    -----------  -----------  -----------  -----------
Operating income..................................................       87,654       58,776      142,743      117,420
Amortization of deferred financing fees...........................           --           --         (421)          --
Interest expense..................................................      (45,157)     (46,427)     (95,954)     (84,411)
                                                                    -----------  ------------ -----------  -----------
Income from property held for sale................................  $    42,497  $    12,349  $    46,368  $    33,009
                                                                    ===========  ===========  ===========  ===========
</TABLE>

13. ISSUANCE OF WARRANT

In connection with providing a line of credit, an affiliate of one of the
Company's underwriters in the Offering was issued a warrant to purchase up to
210,000 shares of common stock. The underwriter's affiliate exercised the
warrant and the Company recognized an expense of approximately $2.1 million in
the first quarter of 2004.

                                       10
<PAGE>

14.  SUBSEQUENT EVENTS

On July 30, 2004, the Company received funding from mortgage loans of $21.0
million and $8.0 million related to the acquisitions of the Pittsburgh Property
and Lenexa Property, respectively. The mortgage notes are collateralized by each
of the respective properties. The mortgage note for the Pittsburgh Property
accrues interest at a fixed rate of 5.50% with principal and interest payments
due monthly in the amount of $126,660. Monthly payments are amortized on a
26-year schedule, with a balloon payment due August 1, 2009. The mortgage note
for the Lenexa Property accrues interest at a fixed rate of 5.44% with principal
and interest payments due monthly in the amount of $47,159. Monthly payments are
amortized on a 27-year schedule, with a balloon payment due August 11, 2009.

                                       11
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This report contains forward-looking statements. These forward-looking
statements include estimates regarding:

    -     our estimated general and administrative expense;

    -     our risk mitigation strategy;

    -     our policy to reserve for operating expenses and capital costs;

    -     our distribution policy;

    -     our operating expenses;

    -     the adequacy of our available capital for future capital requirements;

    -     our capital expenditures; and

    -     the impact of changes in interest rates.

Forward-looking statements can be identified by the use of words such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "intends," "continues," or the negative of such terms, or other
comparable terminology. Forward-looking statements also include the assumptions
underlying or relating to any of the foregoing statements. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including the risks discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors" and elsewhere in this report.

All forward-looking statements included in this report are based on information
available to us on the date hereof. We assume no obligation to update any
forward-looking statements.

The following is a discussion of our interim results of operations, financial
condition and liquidity and capital resources for the three and six months ended
June 30, 2004 compared to the corresponding periods in 2003. It should be read
in conjunction with the Consolidated Financial Statements and Notes thereto
included herein and the 2003 Form 10-K.

OVERVIEW

We invest in single tenant properties under long-term leases to the U.S.
government, state governments, local governments, and government-sponsored
enterprises. We are a self-managed, self-administered company that has elected
to be taxed as a real estate investment trust, or REIT, under the federal tax
laws. We believe that we are the only public company focused solely on investing
in government-leased properties. We own each of our properties through separate
wholly owned entities. Our business consists of buying and managing recently
built or renovated office properties primarily leased to the federal government,
acting through the General Services Administration ("GSA"), under long-term
leases. At June 30, 2004, we owned seven GSA-leased properties that were
acquired in early 2003 and 2004 (one property in the first quarter of 2003,
three properties in the second quarter of 2003, one property in the first
quarter of 2004 and two properties in the second quarter of 2004). These
properties are 100% occupied. At June 30, 2004, we also owned one property that
was leased to the Federal Express Corporation. We intend to sell the Federal
Express property.

CRITICAL ACCOUNTING POLICIES

Refer to our 2003 Annual Report on Form 10-K for a discussion of our critical
accounting policies, which include our revenue recognition of related lease
agreements, recording of real estate at depreciated cost and allocation of the
purchase price of properties we acquire to net tangible and identified
intangible assets. During the first six months of 2004, there were no material
changes to our critical accounting policies.

RESULTS OF OPERATIONS

                                       12
<PAGE>

The following table compares our operating results for the three months ended
June 30, 2004 and 2003.

<TABLE>
<CAPTION>
                                                                                              INCREASE
                                                                        2004       2003      (DECREASE)
                                                                  -----------  -----------  -----------
<S>                                                               <C>          <C>          <C>
Revenue:
Rental income...................................................  $ 1,677,748  $   738,495  $   939,253
Tenant reimbursements...........................................      164,195           --      164,195
                                                                  -----------  -----------  -----------
Total revenue...................................................    1,841,943      738,495    1,103,448
Expenses:
Property Operations.............................................      335,772      122,486      213,286
Real estate taxes...............................................      172,928       20,058      152,870
Depreciation and Amortization...................................      483,486      211,661      271,825
General and administrative......................................      958,641      211,316      747,325
                                                                  -----------  -----------  -----------
Total expenses..................................................    1,950,827      565,521    1,385,306
Operating income (loss).........................................     (108,884)     172,974     (281,858)
Other income....................................................      387,264        2,400      384,864
Interest expense................................................     (367,319)    (297,396)     (69,923)
Amortization of deferred financing fees.........................      (74,900)      (3,615)     (71,285)
                                                                  -----------  -----------  -----------
Loss from continuing operations.................................     (163,839)    (125,637)     (38,202)
Discontinued operations: Income from property held for sale.....       42,497       12,349       30,148
                                                                  -----------  -----------  -----------
Net loss........................................................  $  (121,342) $  (113,288) $    (8,054)
                                                                  ===========  ===========  ===========
</TABLE>

COMPARISON OF THREE MONTHS ENDED JUNE 30, 2004 TO JUNE 30, 2003

Rental income revenue was $1,677,748 for 2004 and $738,495 for 2003. The
increase was due to our acquisition of four properties during 2003 and three
additional properties during 2004.

Tenant reimbursements revenue was $164,195 for 2004 and $0 for 2003. This amount
is primarily the reimbursement of real estate taxes above the real estate base
amount as defined in the lease agreements. The amount in 2004 is comprised of
approximately $100,000 for reimbursement of real estate taxes expensed and paid
in 2003, $30,000 expensed and paid in the first quarter of 2004 and the
remaining amount expensed in the second quarter of 2004. During 2004,
information became available for the Company to determine the real estate base
for the properties acquired in 2003 and thereby the Company billed and received
payment from the tenant.

Property operations expense was $335,772 for 2004 and $122,486 for 2003. The
increase was due to the expansion of our operations and acquisition of
properties in 2003 and 2004.

Real estate tax expense was $172,928 for 2004 and $20,058 for 2003. The increase
was due to the expansion of our operations and acquisition of properties in 2003
and 2004.

Depreciation and amortization was $483,486 for 2004 and $211,661 for 2003. The
increase was due to the expansion of our operations and acquisition of
properties in 2003 and 2004.

General and administrative expense was $958,641 for 2004 and $211,316 for 2003.
The increase was due to the expansion of our operations to become self-managed
and to increase our acquisition activity. The increased items were for salaries,
directors' and officers' insurance, rent, professional fees, public company
expense, and other corporate level activity.

Other income, which consists primarily of interest income, was $387,264 for 2004
and $2,400 for 2003. The increase was primarily due to interest income earned on
short-term investments purchased from the proceeds raised in our January 2004
Offering. The amount of short-term investments held at June 30, 2004 was
$105,164,936 as compared to $254,459 at June 30, 2003.

Interest expense was $367,319 for 2004 and $297,396 for 2003. The increase was
due to a full quarter of interest expense in 2004 as compared to 2003 related to
mortgage debt incurred by us in April 2003 for property acquisitions. This
increase was offset by a reduction in line of credit debt used for working
capital purposes during 2003 which was paid off in January 2004 from a portion
of the proceeds raised in our January 2004 Offering.

                                       13
<PAGE>

Amortization of deferred financing fees Amortization of deferred financing fees
was $74,900 in 2004 and $3,615 in 2003. The increase was due to the amortization
of financing fees incurred in April 2004 related to the $50 million revolving
credit facility.

Income from discontinued operations Income from discontinued operations was
$42,497 for 2004 and $12,349 in 2003. This represents the operating results for
our Harahan property which was deemed held for sale in March 2004. The increase
is due to no depreciation or amortization expense recognized from the date
Harahan was deemed held for sale. We are actively marketing the sale of the
Harahan property. Harahan is the only property we own which is leased by a
non-governmental tenant.

RESULTS OF OPERATIONS

The following table compares our operating results for the six months ended June
30, 2004 and 2003.

<TABLE>
<CAPTION>
                                                                                                       INCREASE
                                                                        2004             2003         (DECREASE)
                                                                   --------------    -----------    --------------
<S>                                                                <C>               <C>            <C>
Revenue:
Rental income....................................................  $    2,721,741    $   814,900    $    1,906,841
Tenant reimbursements............................................         164,195             --           164,195
                                                                   --------------    -----------    --------------
Total revenue....................................................       2,885,936        814,900         2,071,036
Expenses:
Property Operations..............................................         583,550        135,104           448,446
Real estate taxes................................................         321,025         25,294           295,731
Depreciation and Amortization....................................         763,594        235,809           527,785
General and administrative.......................................       1,989,186        306,836         1,682,350
                                                                   --------------    -----------    --------------
Total expenses...................................................       3,657,355        703,043         2,954,312
Operating loss...................................................        (771,419)       111,857          (659,562)
Other income.....................................................         630,533          8,711           621,822
Interest expense.................................................        (766,148)      (309,459)         (456,689)
Expense from issuance of warrant.................................      (2,097,900)            --        (2,097,900)
Amortization of deferred financing fees..........................         (78,514)        (3,615)          (74,899)
                                                                   --------------    -----------    --------------
Loss from continuing operations..................................      (3,083,448)      (192,506)       (2,890,942)
Discontinued operations: Income from property held for sale......          46,368         33,009            13,359
                                                                   --------------    -----------    --------------
Net loss.........................................................  $   (3,037,080)   $  (159,497)   $   (2,877,583)
                                                                   ==============    ===========    ==============
</TABLE>

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2004 TO JUNE 30, 2003

Rental income revenue was $2,721,741 for 2004 and $814,900 for 2003. The
increase was due to our acquisition of four properties during 2003 and three
additional properties in 2004.

Tenant reimbursements revenue was $164,195 for 2004 and $0 for 2003. This amount
is primarily the reimbursement of real estate taxes above the real estate base
amount as defined in the lease agreements. The amount in 2004 is comprised of
approximately $100,000 for reimbursement of real estate taxes expensed and paid
in 2003, $30,000 expensed and paid in the first quarter of 2004 and the
remaining amount expensed in the second quarter of 2004. During 2004,
information became available for the Company to determine the real estate base
for the properties acquired in 2003 and thereby the Company billed and received
payment from the tenant.

Property operations expense was $583,550 for 2004 and $135,104 for 2003. The
increase was due to the expansion of our operations and acquisition of
properties in 2003 and 2004.

Real estate tax expense was $321,025 for 2004 and $25,294 for 2003. The increase
was due to the expansion of our operations and acquisition of properties in 2003
and 2004.

Depreciation and amortization was $763,594 for 2004 and $235,809 for 2003. The
increase was due to the expansion of our operations and acquisition of
properties in 2003 and 2004.

                                       14
<PAGE>

General and administrative expense was $1,989,186 for 2004 and $306,836 for
2003. The increase was due to the expansion of our operations to become
self-managed and to increase our acquisition activity. The increased items were
for salaries, directors' and officers' insurance, rent, professional fees,
public company expenses, and other corporate level activity.

Other income, which consists primarily of interest income, was $630,533 for 2004
and $8,711 for 2003. The increase was primarily due to interest income earned on
short-term investments purchased from the proceeds raised in our January 2004
Offering.

Interest expense was $766,148 for 2004 and $309,459 for 2003. The increase was
due to a full six months of interest expense in 2004 as compared to 2003 related
to mortgage debt incurred by us in April 2003 for property acquisitions. This
increase was offset by a reduction in line of credit debt used for working
capital purposes during 2003 which was paid off in January 2004 from a portion
of the proceeds raised in our January 2004 Offering.

Expense from issuance of warrant In the first quarter of 2004, we recognized
$2,097,900 of expense related to the exercise of a warrant to purchase 210,000
shares of our common stock. The warrant was issued to an affiliate of one of our
underwriters which provided a line of credit to us.

Amortization of deferred financing fees Amortization of deferred financing fees
was $78,514 in 2004 and $3,615 in 2003. The increase was primarily due to the
amortization of financing fees incurred in April 2004 related to the $50 million
revolving credit facility.

Income from discontinued operations Income from discontinued operations was
$46,368 for 2004 and $33,009 in 2003. This represents the operating results for
our Harahan property which was deemed held for sale in March 2004. The increase
is due to no depreciation or amortization expense recognized from the date
Harahan was deemed held for sale. We are actively marketing the sale of the
Harahan property. Harahan is the only property we own which is leased by a
non-governmental tenant.

LIQUIDITY AND CAPITAL RESOURCES

Our short-term liquidity requirements consist primarily of funds to acquire
properties and to pay for operating expenses and other expenditures directly
associated with our properties, such as:

      -     acquisition costs, deposits on properties and purchases of
            properties;

      -     recurring maintenance, repairs and other operating expenses
            necessary to maintain our properties;

      -     property taxes and insurance expenses;

      -     interest expense and scheduled principal payments on outstanding
            indebtedness;

      -     capital expenditures incurred to facilitate the leasing of space at
            our properties, including tenant improvements and leasing
            commissions;

      -     general and administrative expenses; and

      -     distributions paid to our stockholders.

Historically, we have satisfied our short-term liquidity requirements through
our existing working capital and cash provided by our operations and borrowings.

The table below sets forth the debt that we fully repaid from the proceeds of
our January 2004 Offering:

<TABLE>
<CAPTION>
                LENDER                                         USE OF FUNDS                   (IN MILLIONS)
                ------                                         ------------                   -------------
<S>                                            <C>                                            <C>
Citizens First Bancorp, Inc................          Purchase Charleston, WV property           $    2.3
Friedman Billings Ramsey...................    Deposits on acquisitions and working capital          1.0
Genesis Financial Group, Inc...............          Purchase Bakersfield, CA property               1.6
Citizens First Savings Bank................                   Working capital                        0.1
                                                                                                --------
  Total....................................                                                     $    5.0
                                                                                                --------
</TABLE>

                                       15
<PAGE>

We owed approximately $2.3 million to Citizens First Bancorp, Inc. under a $5
million line of credit. We incurred the debt in April 2003 and it accrued
interest on an annual basis at prime plus 50 basis points (4.50% at December 31,
2003).

An affiliate of one of our underwriters, Friedman, Billings and Ramsey, provided
us with a $1 million line of credit, of which we borrowed approximately $0.7
million during 2003 and an additional $0.3 million in January 2004. The total
principal on the debt was $ 1.0 million at the time it was repaid. The debt
accrued interest on an annual basis at a rate of 20%.

We financed the acquisition of our Bakersfield property in part through an
approximately $1.6 million loan from Genesis Financial Group, Inc. We incurred
this debt in January 2003 and it accrued interest on an annual basis at a rate
of LIBOR plus 250 basis points (3.62% at December 31, 2003).

We owed approximately $0.1 million under a $0.2 million line of credit with
Citizens First Savings Bank. We incurred the debt in June 2003 and it accrued
interest at prime (4.00% at December 31, 2003).

Our current mortgages debt obligations are set forth below:

<TABLE>
<CAPTION>
                                                                             BALANCE AS OF
                                                                             JUNE 30, 2004
                                                                             -------------
                 LENDER                             COLLATERAL               (IN MILLIONS)
                 ------                             ----------               -------------
<S>                                              <C>                         <C>
Operating Properties:
  LaSalle Bank/GEMSA..........................   Charleston property           $    13.8
  LaSalle Bank/GEMSA..........................   Clarksburg property                 8.3
  Bank of America.............................   Kingsport property                  2.4
                                                                               ---------
   Total operating properties.................                                 $    24.5
Property held for sale:
  Nomura Credit/Wachovia Securities...........   Harahan property                    3.1
                                                                               ---------
     Total....................................                                 $    27.6
                                                                               =========
</TABLE>

We financed the acquisition of our Charleston property in April 2003 through a
$14 million loan from LaSalle Bank, which matures on May 1, 2013. The unpaid
principal balance of the note bears interest at a rate of 5.74% per annum.
Monthly payments are amortized on a 30-year schedule, with a balloon payment due
May 1, 2013.

We financed the acquisition of our Clarksburg property in April 2003 through an
approximately $8.3 million loan from LaSalle Bank, which matures on May 1, 2013.
The unpaid principal balance of the note bears interest at a rate of 5.74% per
annum. Monthly payments are amortized on a 30-year schedule, with a balloon
payment due May 1, 2013

We financed the acquisition of our Kingsport property in April 2003 through the
assumption of the seller's first mortgage loan in the amount of $2.3 million
from Bank of America, which matures on April 1, 2010, and an unsecured loan
issued by the seller in the amount of $0.2 million, which represents amounts due
to the seller for the seller's escrow funds that remain on deposit with the
first mortgage loan holder. The unpaid principal balance of the first mortgage
loan bears interest at a rate of 8.23% per annum, with monthly payments being
amortized on a 25-year schedule and has a balloon payment due April 1, 2010. The
unpaid principal balance of the seller loan bears interest at a rate of 8.00%
per annum, requires no monthly payments and has a balloon payment of principal
due April 1, 2010. If the payment is made within five days of April 1, 2010, no
interest is due and therefore not accrued.

We financed the acquisition of our Harahan property in December 2002 through a
$3.2 million loan from Nomura Credit, which matures on January 11, 2013. The
unpaid principal balance of the note bears interest at a rate of 5.70% per
annum. Monthly payments are amortized on a 27-year schedule, with a balloon
payment due January 11, 2013. This amount is included in liabilities related to
property held for sale in our consolidated balance sheet. We intend to repay
this loan with proceeds from the sale of this property.


                                       16
<PAGE>

In March 2004, we placed approximately $17.3 million of operating cash into a
restricted cash account to secure a letter of credit (face value also of $17.3
million) in connection with a proposed property acquisition. The letter of
credit expires upon the closure of the proposed property acquisition.

In April 2004, we entered into a $50 million revolving credit facility led by
First National Bank of Omaha. Outstanding amounts under this facility accrue
interest at the floating prime rate, as published by the Wall Street Journal,
which will not be lower than 4%. We paid a commitment fee equal to 0.50% of the
total commitment and will pay an advance fee of 0.50% of each advance. All
amounts provided pursuant to this facility will be due in May 2005. The facility
contains customary restrictive covenants, including limitations on our ability
to purchase properties under development or through unconsolidated affiliates.
We are also required to maintain a minimum tangible net worth of not less than
$90 million, a total liabilities to tangible net worth ratio of no more than 4.0
to 1, and a minimum debt service coverage ratio of 1.2 to 1. We are not allowed
to make distributions that exceed the greater of (i) such amount as is required
to be distributed as a condition our continued status as a REIT, or (ii) $0.25
per common share per quarter. The proceeds of this facility will be used for
short-term acquisition financing for the purchase of federal government-leased
properties that have a minimum remaining lease term of 10 years. This facility
may also be used to provide deposits for purchase contracts or good faith
deposits.

We financed the acquisition of our Pittsburgh property in July 2004 through a
$21 million loan from PNC Bank, which matures on August 1, 2009. The unpaid
principal balance of the note bears interest at a rate of 5.5%. Monthly payments
are amortized on a 26-year schedule, with a balloon payment due August 1, 2009.

We financed the acquisition of our Lenexa property in July 2004 through a $8
million loan from GMAC Commercial Mortgage, which matures on August 11, 2009.
The unpaid principal balance of the note bears interest at a rate of 5.44%.
Monthly payments are amortized on a 27-year schedule, with a balloon payment due
August 11, 2009.

The mortgages on our properties contain customary restrictive covenants,
including provisions that may limit the borrowing subsidiary's ability, without
the prior consent of the lender, to incur additional indebtedness, further
mortgage or transfer the applicable property, purchase or acquire additional
property, discontinue insurance coverage, change the conduct of its business or
make loans or advances to, enter into any transaction of merger or consolidation
with, or acquire the business, assets or equity of, any third party.

Our long-term liquidity requirements consist primarily of funds to pay for
property acquisitions, scheduled debt maturities, renovations, expansions and
other non-recurring capital expenditures that need to be made periodically to
our properties and the costs associated with acquisitions of properties that we
pursue. Historically, we have satisfied our long-term liquidity requirements
through various sources of capital, including our existing working capital, cash
provided by operations, sales of equity securities, and long-term mortgage
indebtedness. We intend to establish sinking fund reserves, based on independent
third-party reports, for future capital expenditures.

Since we recently became self-managed, we have increased cash expenditures for
general and administrative expenses, including salaries, directors' and
officers' insurance, rent, professional fees, public company expense, and other
corporate level activity. We estimate that our annualized general and
administrative cash expenses for our first full year of operations to be in the
range of $3.3 million to $3.6 million (exclusive of the stock warrant issued in
the first quarter of 2004 of $2.1 million and any compensation expense from the
issuance of stock grants, both of which are non-cash items). We have built these
costs over the first full year of operation. As of July 31, 2004, we believe we
are fully staffed. These staffing positions are included in $3.3 to $3.6 million
in projected general and administrative expense described above.

We believe that our existing cash will be sufficient to fund our operations for
at least the next twelve months.

CASH DISTRIBUTION POLICY

We have elected to be taxed as a REIT under the federal tax laws commencing as
of our taxable year beginning January 1, 2003. To qualify as a REIT, we must,
among other things, distribute at least 90% of our ordinary taxable income to
our stockholders. We intend to comply with these requirements and maintain our
REIT status. As a REIT, we generally will not be subject to corporate federal
income taxes on taxable income we distribute (in accordance with the federal tax
laws and applicable regulations) to our stockholders. If we fail to qualify as a
REIT in any taxable year, we will be subject to federal income taxes at regular
corporate rates and may not be able to qualify as a REIT for four subsequent tax
years. Even if we qualify as a REIT, we may be subject to certain state and
local taxes on our income and property and to federal income and excise taxes on
our undistributed taxable income, i.e., taxable income not distributed in the
amounts and in the time frames prescribed by the federal tax laws and applicable
regulations thereunder.

We intend to pay to our stockholders, within the time periods prescribed by the
federal tax laws (in our case by January 31 of the following year), all or
substantially all of our annual taxable income, including gains from the sale of
real estate and recognized gains on sale of securities. We will continue our
policy of making sufficient cash distributions to stockholders in order for us
maintain REIT status under the federal tax laws and to avoid corporate income
and excise tax on undistributed income.

                                       17
<PAGE>

Our distribution policy can be affected by the pace of our property acquisitions
as well as the properties' performance. Management reports that the pace of
property acquisitions has been slow in part because of the fluctuations of the
financial markets and the time required by sellers to resolve tax structuring,
alternative investment and similar seller-related issues prior to closing an
acquisition.

INFLATION

Our GSA leases generally contain provisions designed to mitigate the adverse
impact of inflation. These provisions increase rental rates during the terms of
the leases by indexed escalations based on the Consumer Price Index. In
addition, our GSA leases generally require the tenant to pay a share of
increases in operating expenses and all increases in real estate taxes. This may
reduce our exposure to increases in costs and operating expenses resulting from
inflation. However, increases in property operating costs above the escalation
amount would harm our cash flow and may harm our ability to pay dividends.

FUNDS FROM OPERATIONS

REIT analysts generally consider funds from operations or FFO an alternative
measure of performance for an equity REIT. The National Association of Real
Estate Investment Trusts, or NAREIT, defines funds from operations as net
income, computed in accordance with accounting principles generally accepted in
the United States ("GAAP"), excluding gains or losses from sales of properties,
but including real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. We believe that
FFO is helpful to investors as one of several measures of the performance of an
equity REIT. We further believe that by excluding the effect of depreciation,
amortization and gains or losses from sales of real estate, all of which are
based on historical costs, which may be of limited relevance in evaluating
current performance, FFO can facilitate comparison of operating performance
between periods and between other equity REITs. Investors should review FFO
along with GAAP Net Income Available for Common Shares and cash flow from
operating activities, investing activities and financing activities, when
evaluating an equity REIT's operating performance. We compute FFO in accordance
with standards established by NAREIT, which may not be comparable to FFO
reported by other REITs that do not define the term in accordance with the
current NAREIT definition or that interpret the current NAREIT definition
differently than us. FFO does not represent cash generated from operating
activities in accordance with GAAP, nor does it represent cash available to pay
distributions and should not be considered as an alternative to net income,
determined in accordance with GAAP, as an indication of our financial
performance, or to cash flow from operating activities, determined in accordance
with GAAP, as a measure of our liquidity, nor is it indicative of funds
available to fund our cash needs, including our ability to make cash
distributions.

The following table presents a reconciliation of GAAP to our funds from
operations for the periods presented:

<TABLE>
<CAPTION>
                                                                 THREE MONTHS                    SIX MONTHS
                                                                     ENDED                         ENDED
                                                                    JUNE 30,                      JUNE 30,
                                                             2004           2003            2004            2003
                                                        ------------    ------------    ------------    ------------
<S>                                                     <C>             <C>             <C>             <C>
Net loss.........................................       $   (121,342)   $   (113,288)   $ (3,037,080)   $   (159,497)
Adjustments to reconcile to funds from
  Operations:
Real estate depreciation and amortization (a)....            476,775         210,536         754,515         234,309
                                                        ------------    ------------    ------------    ------------
Funds from Operations............................       $    355,433          97,248    $ (2,282,565)   $     74,812
                                                        ============    ============    ============    ============
Funds from Operations per common share...........       $       0.02    $       0.11    $      (0.13)   $       0.11
                                                        ============    ============    ============    ============
Weighted average common shares outstanding.......         20,509,303         854,313      17,610,800         703,797
                                                        ============    ============    ============    ============
</TABLE>

--------------

(a)   Excludes depreciation of non-real estate assets of $6,711 and $1,125 for
      the three months ended June 30, 2004 and 2003, respectively, and $9,079
      and $1,500 for the six months ended June 30, 2004 and 2003, respectively.

RISK FACTORS

RISKS RELATED TO OUR BUSINESS AND PROPERTIES

WE COMMENCED OPERATIONS IN DECEMBER 2002. OUR MANAGEMENT ONLY RECENTLY JOINED US
AND DOES NOT HAVE ANY EXPERIENCE OPERATING A REIT OR A PUBLIC COMPANY.

                                       18
<PAGE>

    We commenced operations in December 2002. We are, therefore, subject to the
risks associated with the operation of any new business. Further, our president
and chief executive officer joined us in June 2003, our chief financial officer
joined us in September 2003, our director of asset acquisition joined us in
December 2003, our director of asset management joined us in December 2003, and
the remainder of our management joined us in 2004. Our management does not have
any experience operating a REIT or a publicly-owned company. Consequently, you
will be unable to fully evaluate our management's public company operational
abilities. Given our recent organization and management experience, you should
be especially cautious in drawing conclusions about our ability to execute our
business plan.

THE PACE OF OUR PROPERTY ACQUISITIONS TO DATE HAS RESULTED IN CASH FROM
OPERATIONS THAT IS INSUFFICIENT TO COVER DIVIDENDS AT THEIR CURRENT LEVEL.

    We acquired one property for an amount of $5.1 million in the first quarter
of 2004 and two properties for an aggregate amount of $38.6 million in the
second quarter of 2004. Net income from the properties we own has been
significantly less than the dividends we have paid to date. In order to continue
to pay dividends at their current level the Company will be required to use the
equity capital we raised in the Offering which was completed in January 2004.

AT SOME POINT IN THE FUTURE WE MAY EXPERIENCE RAPID GROWTH IN THE NUMBER OF
PROPERTIES ACQUIRED AND UNDER OUR MANAGEMENT.

    At some future date which is not now known, we may experience a period of
rapid growth. In the event of the rapid growth of our portfolio, we cannot
assure you that we will be able to expand our management and staff with
qualified and experienced personnel and implement administrative, accounting and
operational systems sufficient to integrate these properties into our portfolio
and manage any future acquisitions of additional properties without disruptions
or unanticipated costs. Any failure to successfully integrate any future
acquisitions into our portfolio could seriously harm our results of operations
and financial condition and our ability to pay dividends.

THE CLOSINGS OF OUR PROPERTY ACQUISITIONS ARE SUBJECT TO CONDITIONS THAT MAY
PREVENT US FROM ACQUIRING SUCH PROPERTIES.

    Our ability to complete acquisitions depends upon many factors, such as the
negotiation of definitive purchase agreements, the satisfaction of due
diligence, completion of construction, and satisfaction of customary closing
conditions. Any inability to complete acquisitions within our anticipated time
frames may harm our financial results and our ability to pay dividends.

OUR USE OF DEBT FINANCING COULD DECREASE OUR CASH FLOW AND EXPOSE US TO RISK OF
DEFAULT UNDER OUR DEBT DOCUMENTS.

    Our policy is to use debt to finance, on average, approximately 75% of the
acquisition cost of the properties that we buy. As of June 30, 2004, we had
approximately $27.6 million of outstanding indebtedness.

    Since we anticipate that our cash from operations will be insufficient to
repay all of our indebtedness prior to maturity, we expect that we will have to
repay debt through refinancings, sale of properties or sale of additional
equity. If we are unable to refinance our indebtedness on acceptable terms, or
at all, we might be forced to dispose of one or more of our properties on
unfavorable terms, which might result in losses to us and which might adversely
affect our cash available for distribution to our stockholders. If prevailing
interest rates or other factors at the time of a refinancing result in higher
interest rates on such refinancing, our interest expense would increase, which
could seriously harm our operating results and financial condition and our
ability to pay dividends.

Our debt and any increase in our debt may be detrimental to our business and
financial results by:

      -     requiring us to use a substantial portion of our cash flow from
            operations to pay interest, which reduces the amount available for
            the operation of our properties or the payment of dividends;

      -     violating restrictive covenants in our loan documents, which would
            entitle the lenders to accelerate our debt obligations and foreclose
            on our properties;

      -     placing us at a competitive disadvantage compared to our competitors
            that have less debt;

      -     making us more vulnerable to economic and industry downturns and
            reducing our flexibility in responding to changing business and
            economic conditions;

                                       19
<PAGE>

      -     requiring us to sell one or more properties, possibly on unfavorable
            terms; and

      -     limiting our ability to borrow funds for operations or to finance
            acquisitions in the future or to refinance our indebtedness at
            maturity on terms as or more favorable than the terms of our
            original indebtedness.

BECAUSE OUR PRINCIPAL TENANT IS THE U.S. GOVERNMENT, OUR PROPERTIES MAY HAVE A
HIGHER RISK OF TERRORIST ATTACK THAN SIMILAR PROPERTIES THAT ARE LEASED TO
NON-GOVERNMENTAL TENANTS.

    Because our principal tenant is the U.S. government, our properties may have
a higher risk of terrorist attack than similar properties that are leased to
non-governmental tenants. Terrorist attacks may negatively affect our operations
and an investment in our common stock. We cannot assure you that there will not
be further terrorist attacks against the United States or the United States
government. Some of our properties could be considered "high profile" government
buildings, which may make these properties more likely to be viewed as terrorist
targets. These attacks or armed conflicts may directly impact the value of our
properties through damage, destruction, loss or increased security costs.
Certain losses resulting from these types of events are uninsurable and others
would not be covered by our current terrorism insurance. Additional terrorism
insurance may not be available at a reasonable price or at all.

WE DEPEND ON THE U.S. GOVERNMENT FOR MOST OF OUR REVENUES. ANY FAILURE BY THE
U.S. GOVERNMENT TO PERFORM ITS OBLIGATIONS OR RENEW ITS LEASES UPON EXPIRATION
MAY HARM OUR CASH FLOW AND ABILITY TO PAY DIVIDENDS.

    Rent from the U.S. government represented 100% of our revenues from
continuing operations for the six months ended June 30, 2004 and for the year
ended December 31, 2003. In addition, the U.S. government leased 100% of our
total leased square feet of property not held for sale as of June 30, 2004. Any
default by the U.S. government, or its failure to renew its leases with us upon
their expiration, could cause interruptions in the receipt of lease revenue or
result in vacancies, or both, which would reduce our revenue until the affected
property is leased, and could decrease the ultimate value of the affected
property upon sale. Further, failure on the part of a tenant to comply with the
terms of a lease may give us the right to terminate the lease, repossess the
applicable property and enforce the payment obligations under the lease;
however, we would be required to find another tenant. We cannot assure you that
we would be able to find another tenant without incurring substantial costs, or
at all, or that, if another tenant were found, we would be able to enter into a
new lease on favorable terms. Our leases with the U.S. government provide that
the U.S. government may assign the lease and be relieved from all obligations
under the lease, other than unpaid rent and other liabilities outstanding on the
date of the assignment, subject to our prior written consent, which we may not
unreasonably withhold. If this were to occur, it is unlikely that a successor
tenant would have the same credit strength as the U.S. government.

AN INCREASE IN THE OPERATING COSTS OF OUR GOVERNMENT-LEASED PROPERTIES WOULD
HARM OUR CASH FLOW AND ABILITY TO PAY DIVIDENDS.

    Our objective is to acquire government-leased properties in which the tenant
is wholly responsible for any increases in operating costs that apply to the
property. However, this type of triple-net lease is not typical of the leases
entered into through the GSA. Under present practice, most GSA leases cover
increases in real estate taxes above a base amount. These GSA leases also
increase that portion of the rent applicable to other operating expenses by an
agreed upon percentage based upon the Consumer Price Index. To the extent
operating costs other than real estate taxes increase at a rate greater than the
specified percentage, our cash flow would be harmed and our ability to pay
dividends may be harmed.

IF WE ARE UNABLE TO LEASE PROPERTIES THAT ARE PARTIALLY OR COMPLETELY VACANT, WE
MAY BE REQUIRED TO RECOGNIZE AN IMPAIRMENT LOSS WITH RESPECT TO THE CARRYING
VALUES OF THESE PROPERTIES, WHICH MAY SERIOUSLY HARM OUR OPERATING RESULTS AND
FINANCIAL CONDITION.

    We intend to acquire properties that are fully leased to government
entities. However, any of our properties may become partially or completely
vacant in the future. If we are unable to lease these properties and generate
sufficient cash flow to recover the carrying value of these properties, we may
be required to recognize an impairment loss, which could seriously harm our
operating results and financial condition.

RESTRICTIVE COVENANTS IN OUR LOAN DOCUMENTS MAY RESTRICT OUR OPERATING OR
ACQUISITION ACTIVITIES, WHICH MAY HARM OUR FINANCIAL CONDITION AND OPERATING
RESULTS.

                                       20
<PAGE>

    The mortgages on our properties contain customary restrictive covenants,
including provisions that may limit the borrowing subsidiary's ability, without
the prior consent of the lender, to incur additional indebtedness, further
mortgage or transfer the applicable property, purchase or acquire additional
property, discontinue insurance coverage, change the conduct of its business or
make loans or advances to, enter into any transaction of merger or consolidation
with, or acquire the business, assets or equity of, any third party. In
addition, our future lines of credit or loans may contain financial covenants,
further restrictive covenants and other obligations. If we breach covenants or
obligations in our debt agreements, the lender can generally declare a default
and require us to repay the debt immediately and, if the debt is secured, can
foreclose on the property securing the loan. In order to meet our debt service
obligations, we may have to sell properties either potentially at a loss or at
times that prohibit us from achieving attractive returns. Any failure to pay our
indebtedness when due or failure to cure events of default could result in
higher interest rates during the period of the loan default and could ultimately
result in the loss of properties through foreclosure.

INCREASING COMPETITION FOR THE ACQUISITION OF GOVERNMENT-LEASED PROPERTIES MAY
IMPEDE OUR ABILITY TO MAKE FUTURE ACQUISITIONS OR MAY INCREASE THE COST OF THESE
ACQUISITIONS, WHICH COULD HARM OUR OPERATING RESULTS AND FINANCIAL CONDITION.

    We compete with many other entities for the acquisition of government-leased
properties. Our competitors include financial institutions, institutional
pension funds, other REITs, other public and private real estate companies and
private real estate investors. These competitors may prevent us from acquiring
desirable properties or increase the price we must pay for our real estate
investments. Our competitors may have greater resources than we do, and may be
willing to pay more for similar property. In particular, larger REITs may enjoy
significant competitive advantages that result from, among other things, a lower
cost of capital and enhanced operating efficiencies. In addition, the number of
entities and the amount of funds competing for government-leased properties may
increase, resulting in increased demand and increased prices paid for these
properties. If we are forced to pay higher prices for properties, our
profitability may decrease, and our stockholders may experience a lower return
on their investment. Increased competition for properties may also preclude us
from acquiring those that would generate attractive returns to us.

OUR ACQUISITIONS OF GOVERNMENT-LEASED PROPERTIES MAY RESULT IN DISRUPTIONS TO
OUR BUSINESS AS A RESULT OF THE BURDEN PLACED ON MANAGEMENT.

    Our growth strategy involves the acquisition of government-leased
properties. These acquisitions may cause disruptions in our operations and
divert management's attention away from our day-to-day operations, which could
impair our relationships with our current tenants and employees. In addition, if
we were to acquire properties indirectly by acquiring another entity, we may be
unable to integrate effectively the operations and personnel of the acquired
business or to train, retain and motivate any key personnel from the acquired
business. Any inability of our management to implement effectively our
acquisitions may cause disruptions to our business and may harm our operating
results and financial condition, as well as our ability to pay dividends.

WE HAVE LIMITED TIME TO PERFORM DUE DILIGENCE ON MANY OF OUR ACQUIRED
PROPERTIES, WHICH COULD SUBJECT US TO SIGNIFICANT UNEXPECTED LIABILITIES AND
UNDER-PERFORMANCE OF THE ACQUIRED PROPERTIES.

    When we enter into an agreement to acquire a property, we often have limited
time to complete our due diligence prior to acquiring the property. Because our
internal resources are limited, we may rely on third parties to conduct a
portion of our due diligence. For example, we have in the past engaged
environmental consultants, appraisers, professional engineers and lawyers to
help perform due diligence. To the extent we or these third parties
underestimate or fail to identify risks and liabilities associated with the
properties we acquire, we may incur unexpected liabilities or the property may
fail to perform in accordance with our projections. If we do not accurately
assess during the due diligence phase the value of, and liabilities associated
with, properties prior to their acquisition, we may pay a purchase price that
exceeds the current fair value of the assets. As a result, material goodwill and
other intangible assets would be required to be recorded, which could result in
significant charges in future periods. These charges, in addition to the
financial impact of significant liabilities that we may assume, could seriously
harm our financial and operating results, as well as our ability to pay
dividends.

OUR CASH FLOW IS NOT ASSURED. WE MAY NOT PAY DIVIDENDS IN THE FUTURE.

    We intend to distribute to our stockholders all or substantially all of our
taxable REIT income each year in order to comply with the distribution
requirements of the federal tax laws and to avoid federal income tax and the
nondeductible excise tax. We have not established a minimum dividend payment
level. Our ability to pay dividends may be adversely affected by the risks
described in this report. All distributions will be made at the discretion of
our board of directors and will depend on our earnings, our financial condition,
maintenance of our REIT status and other factors that our board of directors may
deem relevant from time to time. We cannot assure you that we will be able to
pay dividends in the future.

                                       21
<PAGE>

    Our ability to pay dividends is based on many factors, including:

    -     our ability to make additional acquisitions;

    -     our success in negotiating favorable lease terms;

    -     our tenants' ability to perform under their leases; and

    -     efficient management of our properties.

    We also cannot assure you that the level of our dividends will increase over
time or the receipt of rental revenue in connection with future acquisitions of
properties will increase our cash available for distribution to stockholders. In
the event of defaults or lease terminations by our tenants, rental payments
could decrease or cease, which would result in a reduction in cash available for
distribution to our stockholders. If our cash available for distributions
generated by our assets is less than our expected dividend distributions, or if
such cash available for distribution decreases in future periods from expected
levels, our ability to make the expected distributions would be adversely
affected. Any such failure to make expected distributions may result in a
decrease in the market price of our stock.

OUR BOARD OF DIRECTORS MAY ALTER OUR INVESTMENT POLICIES AT ANY TIME WITHOUT
STOCKHOLDER APPROVAL.

    Our board of directors may alter our investment policies at any time without
stockholder approval. Changes to these policies may adversely affect our
financial performance.

WE HAVE INCURRED HISTORICAL LOSSES AND MAY INCUR FUTURE LOSSES.

    We have had historical accounting losses of $0.1 million for the three
months ended June 30, 2004 and $0.4 million for the year ended December 31,
2003, and had an accumulated deficit of $3.4 million as of June 30, 2004. We
cannot assure you that we will not have similar losses in the future.

RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE

WE DEPEND ON KEY PERSONNEL WITH LONG-STANDING BUSINESS RELATIONSHIPS, THE LOSS
OF WHOM COULD THREATEN OUR ABILITY TO OPERATE OUR BUSINESS SUCCESSFULLY.

    Our future success depends, to a significant extent, upon the continued
services of Thomas D. Peschio, our president and chief executive officer, and of
the other members of our management team. In particular, the relationships that
Mr. Peschio and the other members of our management team have developed with
existing and prospective developers of government-leased properties is
critically important to the success of our business. Although we have an
employment agreement with Mr. Peschio and other key executives, we cannot assure
you that Mr. Peschio or the other executives will remain employed with us. We do
not maintain key person life insurance on any of our officers. The loss of
services of Mr. Peschio or other senior managers would harm our business and our
prospects.

OUR BOARD OF DIRECTORS MAY AUTHORIZE THE ISSUANCE OF ADDITIONAL SHARES THAT MAY
CAUSE DILUTION.

    In connection with future equity offerings, the board of directors may
authorize the issuance of additional shares of common stock. The issuance of
additional shares could substantially dilute our existing stockholders.

OUR BOARD OF DIRECTORS MAY AUTHORIZE THE ISSUANCE OF SHARES WITH DIFFERING
DIVIDEND RIGHTS THAT COULD HARM OUR STOCKHOLDERS' RIGHT TO RECEIVE DIVIDENDS.

    Our board of directors has the power to issue preferred stock or other
securities that have distribution rights senior to that of the common stock. Any
superior dividend rights could prevent us from paying dividends to the holders
of our common stock.

OUR RIGHTS AND THE RIGHTS OF OUR STOCKHOLDERS TO TAKE ACTION AGAINST DIRECTORS
AND OFFICERS ARE LIMITED.

                                       22
<PAGE>

    Maryland law provides that a director has no liability in that capacity if
he or she performs his or her duties in good faith, in a manner he or she
reasonably believes to be in our best interests and with the care that an
ordinarily prudent person in a like position would use under similar
circumstances. Our governing documents obligate us to indemnify our directors
and officers for actions taken by them in those capacities to the extent
permitted by Maryland law. Generally, Maryland law permits indemnification
except in instances where the person seeking indemnification acted in bad faith
or with active and deliberate dishonesty, or in instances where the person
actually received an improper personal benefit in money, property or services
or, in the case of a criminal proceeding, the person had reasonable cause to
believe that his or her actions were unlawful. Additionally, we may be obligated
to fund the defense costs incurred by our directors and officers. In addition,
our governing documents limit the liability of our directors and officers for
money damages, except for liability resulting from:

    -     actual receipt of an improper benefit or profit in money, property
          or services; or

    -     a final judgment based upon a finding of active and deliberate
          dishonesty by the director, trustee or officer that was material to
          the - cause of action adjudicated.

    As a result, we and our stockholders may have more limited rights against
our directors and officers than might otherwise exist.

OUR OWNERSHIP LIMITATIONS MAY RESTRICT BUSINESS COMBINATION OPPORTUNITIES.

    To qualify as a REIT under the federal tax laws, no more than 50% of our
outstanding shares may be owned, directly or indirectly by five or fewer
individuals (as defined in the federal tax laws to include certain entities)
during the last half of each taxable year (other than our first REIT taxable
year). To preserve our REIT status, our charter generally prohibits direct or
indirect ownership by any person of more than 9.8% of the number or value of
outstanding shares of any class of our securities, including our common stock.
Generally, common stock owned by affiliated owners will be aggregated for
purposes of the ownership limitation. Any transfer of our common stock that
would disqualify our REIT status will be null and void, and the intended
transferee will acquire no rights in such stock. The ownership limitation could
have the effect of delaying, deterring or preventing a change in control or
other transaction in which holders of common stock might receive a premium for
their common stock over the then current market price or which such holders
might believe to be otherwise in their best interest. Further, shares that are
transferred in excess of the 9.8% ownership limit will be designated as "excess
shares" subject to redemption. The ownership limitation provisions also may make
our common stock an unsuitable investment vehicle for any person seeking to
obtain, either alone or with others as a group, ownership of more than 9.8% of
the number or value of outstanding shares of any class of our securities.

PROVISIONS OF OUR CHARTER DOCUMENTS COULD DETER A TAKEOVER, WHICH COULD INHIBIT
OUR STOCKHOLDERS' ABILITY TO RECEIVE AN ACQUISITION PREMIUM FOR THEIR SHARES.

    Provisions of our charter and bylaws could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders.

MARYLAND LAW MAY DISCOURAGE A THIRD PARTY FROM ACQUIRING US, WHICH COULD INHIBIT
YOUR ABILITY TO RECEIVE AN ACQUISITION PREMIUM FOR YOUR SHARES.

    Maryland law provides broad discretion to our board of directors with
respect to its duties in considering a change in control of our company,
including that our board is subject to no greater level of scrutiny in
considering a change in control transaction than with respect to any other act
by our board.

    Maryland law restricts mergers and other business combinations between our
company and an interested stockholder. An "interested stockholder" is defined as
any person who is the beneficial owner of 10% or more of the voting power of our
common stock and also includes any of our affiliates or associates that, at any
time within the two year period prior to the date of a proposed merger or other
business combination, was the beneficial owner of 10% or more of our voting
power. A person is not an interested stockholder if, prior to the most recent
time at which the person would otherwise have become an interested stockholder,
our board of directors approved the transaction which otherwise would have
resulted in the person becoming an interested stockholder. For a period of five
years after the most recent acquisition of shares by an interested stockholder,
we may not engage in any merger or other business combination with that
interested stockholder or any affiliate of that interested stockholder. After
the five year period, any merger or other business combination must be approved
by our board of directors and by at least 80% of all the votes entitled to be
cast by holders of outstanding voting stock and two-thirds of all the votes
entitled to be cast by holders of outstanding voting stock other than the
interested stockholder or any affiliate or associate of the interested
stockholder unless, among other things, the

                                       23
<PAGE>

stockholders (other than the interested stockholder) receive a minimum price for
their common stock and the consideration received by those stockholders is in
cash or in the same form as previously paid by the interested stockholder for
its common stock. These provisions of the business combination statute do not
apply to business combinations that are approved or exempted by our board of
directors prior to the time that the interested stockholder becomes an
interested stockholder. However, the business combination statute could have the
effect of discouraging offers from third parties to acquire us and increasing
the difficulty of successfully completing this type of offer.

OUR CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER HAVE EMPLOYMENT
AGREEMENTS THAT PROVIDE THEM WITH BENEFITS IN THE EVENT THEIR EMPLOYMENT IS
TERMINATED, WHICH COULD PREVENT OR DETER A POTENTIAL ACQUIRER FROM PURSUING A
CHANGE OF CONTROL OF OUR COMPANY.

    We have entered into employment agreements with Thomas D. Peschio, our
president and chief executive officer, and Nancy D. Olson, our treasurer and
chief financial officer, which provide them with severance benefits if their
employment ends due to a termination by us without cause. In the case of such
termination, we would have to pay severance and the vesting of their restricted
stock will accelerate. Mr. Peshio also has the right to terminate his employment
agreement upon a change of control of our company. These agreements could
prevent or deter a change of control of our company that might involve a premium
price for our common stock or otherwise be in the best interests of our
stockholders.

RISKS RELATED TO THE REAL ESTATE INDUSTRY

MORTGAGE DEBT OBLIGATIONS EXPOSE US TO INCREASED RISK OF PROPERTY LOSSES, WHICH
COULD HARM OUR FINANCIAL CONDITION, CASH FLOW AND ABILITY TO SATISFY OUR OTHER
DEBT OBLIGATIONS AND PAY DIVIDENDS.

    Our policy is to use debt to finance, on average, approximately 75% of the
acquisition cost of the properties that we buy. Incurring mortgage debt
increases our risk of property losses because defaults on indebtedness secured
by properties may result in foreclosure actions initiated by lenders and
ultimately our loss of the property securing any loans for which we are in
default. For tax purposes, a foreclosure of any of our properties would be
treated as a sale of the property for a purchase price equal to the outstanding
balance of the debt secured by the mortgage. The outstanding balance of the debt
secured by the mortgage could exceed our tax basis in the property. If this
occurs, we would recognize taxable income on foreclosure, but would not receive
any cash proceeds. As a result, we may be required to identify and utilize other
sources of cash to pay our taxes, which may result in a decrease in cash
available for distribution to our stockholders.

    In addition, our default under any one of our mortgage debt obligations may
increase the risk of our default on our other indebtedness. If this occurs, our
financial condition, cash flow and ability to satisfy our other debt obligations
or ability to pay dividends may be harmed.

ILLIQUIDITY OF REAL ESTATE INVESTMENTS COULD SIGNIFICANTLY IMPEDE OUR ABILITY TO
RESPOND TO ADVERSE CHANGES IN THE PERFORMANCE OF OUR PROPERTIES AND HARM OUR
FINANCIAL CONDITION.

    Because real estate investments are relatively illiquid, our ability to
promptly sell one or more properties in our portfolio in response to changing
economic, financial and investment conditions is limited. The real estate market
is affected by many factors that are beyond our control, including:

    -     adverse changes in national and local economic and market conditions;

    -     changes in interest rates and in the availability, cost and terms of
          debt financing;

    -     changes in governmental laws and regulations, fiscal policies and
          zoning ordinances and costs of compliance with laws and regulations,
          fiscal policies and ordinances;

    -     the ongoing need for capital improvements, particularly in older
          structures;

    -     changes in operating expenses; and

    -     civil unrest, acts of war and natural disasters, including earthquakes
          and floods, which may result in uninsured and underinsured losses.

                                       24
<PAGE>

    We cannot predict whether we will be able to sell any property for the price
or on the terms set by us, or whether any price or other terms offered by a
prospective purchaser would be acceptable to us. We also cannot predict the
length of time needed to find a willing purchaser and to close the sale of a
property. These factors and any others that would impede our ability to respond
to adverse changes in the performance of our properties could harm our operating
results and financial condition, as well as our ability to pay dividends to
stockholders.

COMPLIANCE WITH ENVIRONMENTAL LAWS COULD MATERIALLY INCREASE OUR OPERATING
EXPENSES.

    Our properties may be subject to environmental liabilities. An owner of real
property can face liability for environmental contamination created by the
presence or discharge of hazardous substances on the property. We may face
liability regardless of:

    -     our knowledge of the contamination;

    -     the timing of the contamination;

    -     the cause of the contamination; or

    -     the party responsible for the contamination of the property.

    There may be environmental problems associated with our properties of which
we are unaware. Some of our properties use, or may have used in the past,
underground tanks for the storage of petroleum-based or waste products that
could create a potential for release of hazardous substances. If environmental
contamination exists on our properties, we could become subject to strict, joint
and several liability for the contamination by virtue of our ownership interest.

    The presence of hazardous substances on a property may adversely affect our
ability to sell the property and we may incur substantial remediation costs. In
addition, although we may require in our leases that tenants operate in
compliance with all applicable laws and to indemnify us against any
environmental liabilities arising from a tenant's activities on the property, we
could nonetheless be subject to strict liability by virtue of our ownership
interest, and we cannot be sure that our tenants would satisfy their
indemnification obligations under the applicable sales agreement or lease. The
discovery of environmental liabilities attached to our properties could harm our
results of operations and financial condition and our ability to pay dividends
to stockholders.

OUR PROPERTIES MAY CONTAIN OR DEVELOP HARMFUL MOLD, WHICH COULD LEAD TO
LIABILITY FOR ADVERSE HEALTH EFFECTS AND COSTS OF REMEDIATING THE PROBLEM.

    When excessive moisture accumulates in buildings or on building materials,
mold growth may occur, particularly if the moisture problem remains undiscovered
or is not addressed over a period of time. Some molds may produce airborne
toxins or irritants. Concern about indoor exposure to mold has been increasing
as exposure to mold may cause a variety of adverse health effects and symptoms,
including allergic or other reactions. As a result, the presence of significant
mold at any of our properties could require us to undertake a costly remediation
program to contain or remove the mold from the affected property. In addition,
the presence of significant mold could expose us to liability from our tenants,
employees of our tenants and others if property damage for health concerns
arise.

COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND FIRE, SAFETY AND OTHER
REGULATIONS MAY REQUIRE US TO MAKE UNEXPECTED EXPENDITURES THAT ADVERSELY IMPACT
OUR ABILITY TO PAY DIVIDENDS.

    Some or all of our properties may be required to comply with the Americans
with Disabilities Act, or the ADA. The ADA has separate compliance requirements
for "public accommodations" and "commercial facilities," but generally requires
that buildings be made accessible to people with disabilities. Compliance with
the ADA requirements could require removal of access barriers and non-compliance
could result in imposition of fines by the U.S. government or an award of
damages to private litigants, or both. We will attempt to shift the cost of
compliance with the ADA to our tenants whenever possible. However, if we are
unable to negotiate lease terms to this effect, if required changes involve
greater expenditures than anticipated, or if the changes must be made on a more
accelerated basis than anticipated, we could be required to expend our own funds
to comply with the provisions of the ADA, which could adversely affect our
results of operations and financial condition and our ability to make
distributions to stockholders. In addition, we are required to operate our
properties in compliance with fire and safety regulations, building codes and
other land use regulations, as they may be adopted by governmental agencies and
bodies and become applicable to our properties. We may be

                                       25
<PAGE>

required to make substantial capital expenditures to comply with those
requirements and these expenditures could harm our ability to pay dividends to
our stockholders.

AN UNINSURED LOSS OR A LOSS THAT EXCEEDS THE INSURANCE POLICY LIMITS ON OUR
PROPERTIES COULD SUBJECT US TO LOST CAPITAL OR REVENUE ON THOSE PROPERTIES.

    Some of our properties may be covered by flood and earthquake insurance
policies obtained by and paid for by the tenants as part of their risk
management programs. Additionally, we have obtained blanket liability, flood and
property damage insurance policies to protect us and our properties against loss
should the indemnities and insurance policies provided by the tenants fail to
restore the properties to their condition prior to a loss. All of these policies
may involve substantial deductibles and certain exclusions. In certain areas, we
may have to obtain earthquake insurance on specific properties as required by
our lenders or by law. We have also obtained terrorism insurance on all of our
GSA-leased properties, but this insurance is subject to exclusions for loss or
damage caused by nuclear substances, pollutants, contaminants and biological and
chemical weapons. Should a loss occur that is uninsured or in an amount
exceeding the combined aggregate limits for the policies noted above, or in the
event of a loss that is subject to a substantial deductible under an insurance
policy, we could lose all or part of our capital invested in, and anticipated
revenue from, one or more of the properties, which could harm our operations
results and financial condition, as well as our ability to pay dividends to
stockholders at historical levels or at all.

TAX RISKS OF OUR BUSINESS AND STRUCTURE

AN INVESTMENT IN OUR COMMON STOCK HAS VARIOUS TAX RISKS THAT COULD AFFECT THE
VALUE OF OUR STOCKHOLDERS' INVESTMENT, INCLUDING THE TREATMENT OF DISTRIBUTIONS
IN EXCESS OF EARNINGS, THE TIMING OF DIVIDEND PAYMENTS, AND THE INABILITY TO
APPLY "PASSIVE LOSSES" AGAINST DISTRIBUTIONS.

    The effects of federal, state and local income tax law on an investment in
our common stock are complex, including the treatment of distributions in excess
of current and accumulated earnings and profits, to the extent that they exceed
the adjusted basis of an investor's common stock, as long-term capital gain (or
short-term capital gain if the shares have been held for less than one year),
the treatment of any dividend declared by us in October, November or December of
any year payable to a stockholder of record on a specific date in any such month
as being paid by us and received by the stockholder on December 31 of such year,
the treatment of any gain or loss realized upon a taxable disposition of shares
by a stockholder who is not a dealer in securities as a long-term capital gain
or loss if the shares have been held for more than one year, otherwise as
short-term capital gain or loss, the treatment of distributions that we properly
designate as capital gain dividends as taxable to stockholders as gains (to the
extent that they do not exceed our actual net capital gain for the taxable year)
from the sale or disposition of a capital asset held for greater than one year,
and the failure to treat distributions we make and gain arising from the sale or
exchange by a stockholder of shares of our stock as passive income, meaning
stockholders generally will not be able to apply any "passive losses" against
such income or gain.

FUTURE DISTRIBUTIONS MAY INCLUDE A SIGNIFICANT PORTION AS A RETURN OF CAPITAL.
WHILE WE HAVE NOT BORROWED FOR THE SPECIFIC PURPOSE OF PAYING DISTRIBUTIONS IN
THE PAST, OUR PRIOR BORROWINGS ALLOWED US TO PAY DISTRIBUTIONS FROM OUR CASH
FROM OPERATIONS.

    Our distributions to date have exceeded the amount of our income as a REIT.
Distributions in excess of our income will be treated as a return of capital to
the extent of the stockholder's basis in our stock and the stockholder's basis
in our stock will be reduced by such amount. To the extent distributions exceed
a stockholder's basis in our stock, the stockholder will recognize capital gain,
assuming the stock is held as a capital asset. All of our prior distributions
consisted of a return of capital.

DISTRIBUTION REQUIREMENTS IMPOSED BY LAW LIMIT OUR FLEXIBILITY IN EXECUTING OUR
BUSINESS PLAN.

    As a REIT, we generally are required to distribute to our stockholders at
least 90% of our taxable REIT income each year in order to maintain our status
as a REIT for federal income tax purposes. Taxable REIT income is determined
without regard to the deduction for dividends paid and by excluding net capital
gains. We are also required to pay tax at regular corporate rates to the extent
that we distribute less than 100% of our taxable income (including net capital
gains) each year. In addition, we are required to pay 4% nondeductible excise
tax on the amount, if any, by which certain distributions we pay with respect to
any calendar year are less than the sum of 85% of our ordinary income for that
calendar year, 95% of our capital gain net income for the calendar year and any
amount of our income that was not distributed in prior years.

                                       26
<PAGE>

    We intend to distribute to our stockholders all or substantially all of our
taxable REIT income each year in order to comply with the distribution
requirements of the federal tax laws and to avoid federal income tax and the
nondeductible excise tax. Differences in timing between the receipt of income
and the payment of expenses in arriving at taxable REIT income and the effect of
required debt amortization payments could require us to borrow funds on a
short-term basis to meet the distribution requirements that are necessary to
achieve the tax benefits associated with qualifying as a REIT.

WE MAY INCUR ADDITIONAL INDEBTEDNESS IN ORDER TO MEET OUR DISTRIBUTION
REQUIREMENTS. WHILE WE HAVE NOT BORROWED FOR THE SPECIFIC PURPOSE OF PAYING
DISTRIBUTIONS, OUR PRIOR BORROWINGS ALLOWED US TO PAY DISTRIBUTIONS FROM OUR
CASH FROM OPERATIONS.

    As a REIT, we are required to distribute at least 90% of our taxable REIT
income, which limits the amount of cash we will have available for other
business purposes, including amounts to fund our growth. It is possible that the
differences between the time we actually receive revenue or pay expenses and the
period we report those items for distribution purposes, and potentially
insufficient cash, could result in our having to borrow funds on a short-term
basis to meet the 90% distribution requirement. While we have not borrowed for
the specific purpose of paying distributions, our prior borrowings allowed us to
pay distributions from our operations. These borrowings may decrease cash
available for distribution.

OUR DISPOSAL OF PROPERTIES MAY HAVE NEGATIVE IMPLICATIONS, INCLUDING UNFAVORABLE
TAX CONSEQUENCES.

    If we make a sale of a property directly, and it is deemed to be a sale of
dealer property or inventory, the sale may be deemed to be a "prohibited
transaction" under the provisions of the federal tax laws applicable to REITs,
in which case our gain from the sale would be subject to a 100% penalty tax. If
we believe that a sale of a property might be treated as a prohibited
transaction, we will attempt to structure a sale through a taxable REIT
subsidiary, in which case the gain from the sale would be subject to corporate
income tax but not the 100% prohibited transaction tax. We cannot assure you,
however, that the IRS would not assert successfully that sales of properties
that we make directly, rather than through a taxable REIT subsidiary, were sales
of dealer property or inventory, in which case the 100% penalty tax would apply.

IF WE FAIL TO REMAIN QUALIFIED AS A REIT, OUR DIVIDENDS WILL NOT BE DEDUCTIBLE
BY US, AND OUR INCOME WILL BE SUBJECT TO TAXATION.

    If we fail to remain qualified as a REIT, our dividends will not be
deductible by us and we will be subject to a corporate level tax on our taxable
income. This would substantially reduce our cash available to pay dividends and
the yield on your investment. Incurring corporate income tax liability might
cause us to borrow funds, liquidate some of our investments or take other steps
which could negatively affect our operating results. If our REIT status is
terminated because of our failure to meet a REIT qualification requirement or if
we voluntarily revoke our election, we would be disqualified from electing
treatment as a REIT for the four taxable years following the year in which REIT
status is lost.

WE MAY BE SUBJECT TO FEDERAL AND STATE INCOME TAXES THAT WOULD HARM OUR
FINANCIAL CONDITION.

    Even if we maintain our status as a REIT, we may become subject to federal
income taxes and related state taxes. For example, if we have net income from a
sale of dealer property or inventory, that income will be subject to a 100%
penalty tax. In addition, we may not be able to pay sufficient distributions to
avoid corporate income tax and the 4% excise tax on undistributed income. We may
also be subject to state and local taxes on our income or property, either
directly or at the level of our operating partnership or at a level of the other
entities through which we indirectly own our properties that would aversely
affect our operating results. We cannot assure you that we will be able to
maintain REIT status, or that it will be in our best interests to continue to do
so.

WE MAY BE SUBJECT TO ADVERSE LEGISLATIVE OR REGULATORY TAX CHANGES THAT COULD
REDUCE THE MARKET PRICE OF OUR COMMON STOCK.

    The federal tax laws governing REITs and the administrative interpretations
of those laws may be amended at any time. Any of those new laws or
interpretations may take effect retroactively. On May 28, 2003, President Bush
signed into law a tax bill that reduces the tax rate on both dividends and
long-term capital gains for most non-corporate taxpayers to 15% until 2008. This
reduced tax rate generally does not apply to ordinary REIT dividends, which will
continue to be taxed at the higher tax rates applicable to ordinary income. This
legislation could cause shares in non-REIT corporations to be a more attractive
investment to individual investors than they had been, and could harm the market
price of our common stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                                       27
<PAGE>

    Our future income, cash flows and fair values relevant to financial
instruments depend upon prevailing market interest rates. Market risk refers to
the risk of loss from adverse changes in market prices and interest rates.

    Market Risk Related to Fixed-Rate Debt

    As of June 30, 2004, our debt included fixed-rate mortgage notes with a
carrying value of $27.6 million (including $3.1 million related to a property
held for sale). Changes in market interest rates on our fixed-rate debt impacts
the fair market value of the debt, but it has no impact on interest incurred or
cash flow. The sensitivity analysis related to our fixed debt assumes an
immediate 100 basis point move in interest rates from their actual June 30, 2004
levels, with all other variables held constant.

    A 100 basis point increase in market interest rates would result in a
decrease in the fair value of our fixed-rate debt by approximately $1.7 million
at June 30, 2004. A 100 basis point decrease in market interest rates would
result in an increase in the fair market value of our fixed-rate debt by
approximately $1.8 million at June 30, 2004.

INTEREST RATE SENSITIVITY

    The following table provides information about our financial instruments
that are subject to interest rate sensitivity. The table presents our mortgage
notes payable by expected maturity date and weighted average interest rate as of
June 30, 2004.

                            INTEREST RATE SENSITIVITY

<TABLE>
<CAPTION>
                                          2004         2005         2006         2007         2008       THEREAFTER       TOTAL
                                      -----------  -----------  -----------  -----------  -----------  --------------  -----------
<S>                                   <C>          <C>          <C>          <C>          <C>          <C>             <C>
MORTGAGE NOTES PAYABLE (A):
Fixed rate amount...................  $  382,509   $  402,243   $  430,207   $  451,152   $  479,548   $ 25,478,322    $ 27,623,981
Weighted-average interest rate......        5.99%        5.99%        6.00%        6.01%        6.00%           5.95%          5.96%
</TABLE>

(a)   We have included $3.1 million of mortgage debt related to a property held
      for sale in 2004.

ITEM 4. CONTROLS AND PROCEDURES

    Evaluation of disclosure controls and procedures. Our management continues
to review our internal controls and procedures and the effectiveness of those
controls. As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our CEO and CFO,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934.
Based upon that evaluation, our CEO and CFO concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information relating to us (including our consolidated subsidiaries) required to
be included in our periodic SEC filings.

    Changes in internal control over financial reporting. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls during the quarter ended June 30,
2004.

                                       28
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

We completed a registered public offering on January 26, 2004. The SEC declared
the registration statement for this offering (Form S-11, file nos. 333-109565
and 333-112219) effective on January 26, 2004. We registered 19,320,000 shares
of common stock, including 2,520,000 shares subject to the underwriters'
over-allotment option, with an aggregate public offering price of $193.2
million. The offering terminated upon its completion.

The initial public offering commenced on January 6, 2004 and we sold all of the
shares that we registered for aggregate proceeds of $193.2 million through an
underwriting syndicate managed by Friedman, Billings, Ramsey & Co., Inc., BB&T
Capital Markets, a Division of Scott & Stringfellow, Inc., and Flagstone
Securities, LLC. Our expenses for the offering included approximately $13.5
million for underwriting discounts and commissions, $0.7 million for
reimbursement of underwriter expenses, $2.0 million for other expenses, for a
total of $16.2 million. All of these expenses were paid directly to the
recipients and none were paid to any of our officers, directors, ten percent or
greater stockholders, or affiliates.

After payment of the foregoing expenses, we received approximately $177.0
million in net proceeds from the offering. As of August 16, 2004, we had used
the proceeds as follows:

    -     approximately $1.0 million to repay outstanding indebtedness owed to
          an affiliate of one of our underwriters, Friedman, Billings, Ramsey
          & Co., Inc.;

    -     approximately $1.6 million to repay outstanding indebtedness owed to
          Genesis Financial Group, Inc., a former affiliate, that was used to
          finance the acquisition of our Bakersfield property;

    -     approximately $2.3 million to repay outstanding indebtedness under a
          line of credit owed to Citizens First Bancorp, Inc. that was used to
          finance the acquisition of our Charleston property;

    -     approximately $0.1 million to repay outstanding indebtedness owed to
          Citizens First Savings Bank that was used for general working
          capital purposes;

    -     approximately $5.1 million to complete the Mineral Wells acquisition;

    -     approximately $7.6 million net of mortgage to complete the Pittsburgh
          acquisition;

    -     approximately $2.7 million net of mortgage to complete the Lenexa
          acquisition;

    -     approximately $17.3 million in restricted cash to secure a letter of
          credit in connection with a proposed property acquisition;

    -     approximately $2.0 million to fund deposits on proposed property
          acquisitions; and

    -     approximately $2.0 million for general working capital purposes.

    -     approximately $6.2 million for dividend payments.

The remainder of the net proceeds are temporarily invested in money market
investments and will ultimately be used for acquisitions and working capital.

                                       29
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's Annual Meeting of Shareholders was held on June 2, 2004. The
matter voted upon at such meeting and the number of shares cast for and withheld
are as follows:

1. Election of directors to hold office until the next Annual Meeting of
Shareholders:

<TABLE>
<CAPTION>
         NOMINEE                       FOR              WITHHELD    ABSTENTIONS
<S>                                 <C>                 <C>         <C>
Jerry D. Bringard                   18,447,020          307,865      1,925,617
Robert M. Ames                      18,595,935          158,950      1,925,617
Spencer I. Browne                   18,620,535          134,350      1,925,617
Philip S. Cottone                   18,671,935           82,950      1,925,617
Robert A. Peck                      18,671,535          133,350      1,875,617
Thomas D. Peschio                   18,671,335           93,550      1,915,617
Richard H. Schwachter               18,671,935           82,950      1,925,617
</TABLE>

There are no directors other than those listed above whose term of office
continued after the Annual Meeting.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits:

            31.1  Certification of Chief Executive Officer pursuant to SEC Rule
                  13a-14, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002

            31.2  Certification of Chief Financial Officer pursuant to SEC Rule
                  13a-14, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002

            32.1  Certification of Chief Executive Officer pursuant to 18 U.S.C.
                  Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

            32.2  Certification of Chief Financial Officer pursuant to 18 U.S.C.
                  Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

      (b)   Reports on Form 8-K:

    On May 18, 2004, we filed a current report on Form 8-K to furnish our
earnings press release and Supplemental Operating and Financial Data package of
financial results for the three months ended March 31, 2004.

    On May 18, 2004 we filed a current report on Form 8-K to report the
acquisition of the United States Federal Bureau of Investigation Building in
Pittsburgh, PA.

    On June 18, 2004 we filed a current report on Form 8-K to report the
acquisition of the Food and Drug Administration district headquarters complex in
Lenexa, KS.

                                       30
<PAGE>

                                    SIGNATURE

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                GOVERNMENT PROPERTIES TRUST, INC.

Date: August 16, 2004           By:           /s/ NANCY D. OLSON
                                    -------------------------------------------
                                                Nancy D. Olson
                                      Chief Financial Officer and Treasurer
                                          (principal financial officer)

                                       31